On 1/1/2013, Shareholder A & B incorporated ACME by transferring cash, a building, and land to the corporation in return for 100 percent of the corporationâ€™s stock. The property transferred to the corporation had the following fair market value and adjusted basis. Each shareholder was issued 100 shares of $10 par value stock.
The fair market value of the corporationâ€™s stock received in the exchange equaled the fair market value of the assets transferred to the corporation by the shareholders. The transaction met the requirements to be tax-deferred under Â§351.
The Building has never been depreciated and has a mortgage attached to it in the amount of $50,0000 (considered to be business purpose debt). ACME Inc. will assume the mortgage. Shareholder A also received $25,000 in boot in the transaction.
Liability par value $10
Item Fair Value Adjusted Basis Boot Rec’d Book Value # shares issued
Shareholder B Cash $300,000 $300,000 $275,000 100
Shareholder A Building $300,000 $110,000 $25,000 $300,000 100
Shareholder A Mortgage $(50,000) $(50,000)
Shareholder A Land $75,000 $60,000 $- $75,000
Total $625,000 $470,000 $25,000 $600,000 200
(FMV of stock issued)
Create the journal entry to record this event.
Calculate shareholder gain realized and if necessary, recognized for the transaction.
gain realized gain recognized